What Is the Income-tax Act, 2025?
The Income-tax Act, 2025 (Act 30 of 2025) is India's rewritten income tax statute. It received the President's assent on 21 August 2025, and under section 1(3) it comes into force on 1 April 2026, "save as otherwise provided in this Act." Section 536(1) repeals the Income-tax Act, 1961 in full. The new Act runs to 536 sections across 16 Schedules and is described in its own preamble as "An Act to consolidate and amend the law relating to income-tax."
For a foreign company or investor operating in India, or planning to register here, the 2025 Act is the law that governs every tax year beginning on or after 1 April 2026 — permanent establishment tests, withholding rates, transfer pricing rules, DTAA relief, and the forms and deadlines behind each of them. It substantially carries forward the substance of the 1961 Act while renumbering almost every section and reorganising many rate and threshold rules into tables, so the compliance risk is less about new rules and more about citing the right number for the right year.
Commencement and the Repeal of the 1961 Act
Section 1(3) fixes the general commencement date at 1 April 2026. Section 536(1) repeals the Income-tax Act, 1961 (43 of 1961) outright, but section 536(2) preserves it for unfinished business: nothing in the repeal affects the previous operation of the 1961 Act or any right, privilege, obligation or liability already accrued under it, and — critically — the 1961 Act's provisions continue to apply, using its own procedure, to any proceeding pending on commencement and to any proceeding (notice, assessment, reassessment, rectification, penalty, appeal, revision) initiated on or after 1 April 2026 in respect of a tax year beginning before that date. Elections and declarations made under the 1961 Act remain valid under the corresponding provision of the new Act. The Finance Act, 2026 substituted "sub-section (4)" for "sub-section (3)" in the opening words of section 536(2), so the savings now operate "subject to sub-section (4)" — the sub-section that applies section 6 of the General Clauses Act, 1897 to the effect of the repeal.
Section 536(3) adds a reading rule: wherever the new Act refers to a tax year commencing on 1 April 2025 or any earlier tax year, that reference is to be read as the corresponding previous year under the repealed 1961 Act. Section 535 gives the Central Government a power to remove difficulties in applying the new Act, including making adaptations for how the 1961 Act applies to assessments for the tax year ending 31 March 2026 or earlier — but that power itself lapses three years after 1 April 2026.
The practical result is a multi-year overlap. A return, assessment or appeal for financial year 2025-26 or earlier is decided under the Income-tax Act, 1961, in full, even though it is filed and processed after 1 April 2026. Only tax years beginning on or after 1 April 2026 are governed by the new Act.
The Single "Tax Year" Replaces Previous Year and Assessment Year
Section 3 defines "tax year" as the twelve-month period of the financial year commencing on 1 April. Where a business or profession is newly set up, or a new source of income arises during a financial year, the tax year for that source runs from the date it started to the end of that financial year. This single defined term replaces the 1961 Act's two overlapping concepts — the "previous year" in which income was earned and the "assessment year" in which it was assessed — with one label for one twelve-month period. Every date-driven rule in the new Act (filing deadlines, TDS thresholds, advance tax instalments) is now expressed against the tax year rather than a previous-year/assessment-year pair.
Section Renumbering: What Foreign Investors Need to Track
Because the repeal is total but the substance mostly carries over, the same rule now sits at a different section number, and — for several years — both numbers are live law for different tax years. House style on this site cites both: "section 207(1) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961)" on first mention, never "formerly," because the old section still governs FY 2025-26 and earlier.
| Subject | 2025 Act | 1961 Act |
|---|---|---|
| Business connection / permanent establishment | Section 9(2)(c) (defined in 9(9)) | Section 9(1)(i) |
| Royalty deemed to accrue in India | Section 9(6) | Section 9(1)(vi) |
| Fees for technical services deemed to accrue in India | Section 9(7) | Section 9(1)(vii) |
| DTAA relief (treaty-more-beneficial rule at (4); GAAR override at (6); TRC requirement at (8)) | Section 159 | Section 90 |
| NR dividend / interest rate, 20% | Section 207(1) (Table, Sl. Nos. 1-3) | Section 115A |
| NR royalty / FTS rate, 20% | Section 207(2) (Table, Sl. Nos. 1 and 2) | Section 115A |
| TDS on payments to non-residents | Section 393(2) (Table, Sl. No. 17) | Section 195 |
| Transfer pricing documentation / accountant's report | Sections 171 / 172 | Sections 92D / 92E |
| Advance pricing agreement | Section 168 | Section 92CC |
| 22% domestic company rate | Section 200 read with section 205(1) | Section 115BAA |
| 15% new manufacturing company rate | Section 201 (Table, Sl. No. 1) read with section 205(2) | Section 115BAB |
A structural trap sits inside this table: some new section numbers are recycled from an old section covering a completely different subject. New section 201 carries the 15% manufacturing rate, but old section 201 dealt with failure to deduct or pay TDS — its own successor is now section 398. Any document that states a bare "section 201" without naming the Act and year can be read either way. The same applies to sections 79, 195 and 197, each reused for an unrelated subject in the new Act. A citation is only unambiguous once it names the Act and year.
Forms Renumbered Under the Income-tax Rules, 2026
The Income-tax Rules, 2026 that accompany the new Act renumber the recurring compliance forms a foreign company or its non-resident payees actually file. The clearest confirmations come from the forms' own page-one header tables, which give the old-to-new mapping directly.
| Old (1961 Act / 1962 Rules) | New (2025 Act / 2026 Rules) |
|---|---|
| Form 41 (formerly Form 10F) — non-resident's treaty-benefit information | Form 41 |
| Form 145 (formerly Form 15CA) — remitter's declaration | Form 145 |
| Form 146 (formerly Form 15CB) — Chartered Accountant's certificate for foreign remittance | Form 146 |
| Form 144 (formerly Form 27Q) — TDS return, non-resident payees | Form 144 |
| Form 140 (formerly Form 26Q) — TDS return, resident non-salary | Form 140 |
| Form 138 (formerly Form 24Q) — TDS return, salary | Form 138 |
PAN is optional for e-filing Form 41 (formerly Form 10F) — a non-PAN registration category exists for the recipient. Treaty benefit at source is available only once this declaration is actually filed; it is not automatic. Forms 145 and 146 (formerly Forms 15CA and 15CB) keep the same Part A/B/C/D structure as before, and Form 146 remains needed only for Part C remittances — taxable remittances above 5 lakh rupees without a lower- or nil-deduction certificate from the Assessing Officer.
Why the Income-tax Act, 2025 Matters for Foreign Companies and Investors
Three practical consequences follow directly from the structure above. First, any tax opinion, board resolution, loan agreement or transfer pricing study still in use should be checked for section citations: a document drafted before 2026 will cite 1961 numbers, and if it is relied on for a tax year beginning on or after 1 April 2026, the citation needs updating to the corresponding 2025 Act section — not simply relabelled as "formerly," since the 1961 number can still be correct for an earlier tax year referenced in the same document. Second, remittance paperwork changes name: banks and Authorised Dealers now expect Form 41, 145 and 146 rather than Forms 41, 145 and 146 for remittances relating to tax years from 1 April 2026 onward. Third, the transition itself is not a single cut-over date — a foreign company filing its return for financial year 2025-26 during the 2026-27 compliance calendar is still working entirely within the 1961 Act under section 536(2)(c), while its financial year 2026-27 compliance already runs under the new Act. Both regimes are live simultaneously for several years.
One substantive change worth flagging directly: the angel tax charge on share premium received by a closely-held company (which had, since 2023, extended to consideration received from non-resident investors) has no successor section in the new Act — it was repealed with effect from assessment year 2025-26, so it does not apply to share premium received in financial year 2024-25 or any later year.
Practical Checklist
- Confirm which tax year a document, filing or dispute relates to before citing a section number — the answer decides whether the 1961 Act or the 2025 Act applies.
- Update remittance certification workflows to Forms 41, 145 and 146 for tax years from 1 April 2026 onward, while keeping the old form numbers for anything relating to an earlier tax year.
- Re-check transfer pricing documentation, advance pricing agreements and any board paper that cites a bare section number — rewrite it to name the Act and year, especially for the numbers that collide (79, 195, 197, 201).
- Do not assume every form has been renumbered. Government sources have not yet confirmed new numbers for several commonly used forms, including Form 48 (formerly Form 3CEB) (transfer pricing accountant's report) and Form 3CD (tax audit report) — keep using the existing form number until an official mapping is published.
Common Mistakes
- Calling a section number "formerly" when both Acts are still live law. Because section 536(2)(c) keeps the 1961 Act in force for tax years before 1 April 2026, the old section is not obsolete — it is simply year-scoped. The house convention is to cite both: "section [X] of the Income-tax Act, 2025 (section [Y] of the Income-tax Act, 1961)."
- Treating a recycled section number as settled without naming the Act. A bare "section 201" or "section 195" is ambiguous by design once both Acts are in force for different years.
- Assuming the repeal ended all obligations under the 1961 Act. Pending assessments, appeals, penalty proceedings and elections made under the old Act continue exactly as if the new Act had not been passed, per section 536(2).
- Guessing at a rule number for the 2026 Rules. Departmental FAQs give the old-to-new form mapping, but the underlying rule numbers have not all been independently verified against the gazette text, and a later corrigendum exists; cite the form number, not an unverified rule number.
Frequently Asked Questions
Is the Income-tax Act, 1961 still relevant after the 2025 Act comes into force?
Yes, for years past. Section 536(1) repeals it, but section 536(2) keeps it fully operative for any tax year beginning before 1 April 2026 — including pending assessments, appeals, and penalty proceedings for those years, which are carried out entirely under the 1961 Act's own procedure as if the new Act did not exist.
What does "tax year" mean under the Income-tax Act, 2025?
Section 3 defines it as the twelve-month financial year starting 1 April. It replaces the 1961 Act's split between the "previous year" income was earned in and the later "assessment year" it was taxed in, so filings and deadlines now reference one year, not two.
Do the tax rates themselves change under the new Act?
Largely no — the 2025 Act mainly renumbers and re-tables the 1961 Act's provisions rather than changing rates. The 20% rate on non-resident dividends, interest, royalties and fees for technical services, for example, carries over from section 115A of the 1961 Act to section 207 of the 2025 Act unchanged (dividends and interest in the section 207(1) Table, royalties and fees for technical services in the section 207(2) Table), though some rates (such as the tax on unexplained income) were separately revised.
Have the TDS and remittance forms changed?
Yes. Form 41 becomes Form 41, Form 145 becomes Form 145, and Form 146 becomes Form 146, among others, under the Income-tax Rules, 2026. Their structure and purpose are unchanged, but filings for tax years from 1 April 2026 onward should use the new form numbers.
When exactly did the Income-tax Act, 2025 take effect?
Section 1(3) sets 1 April 2026 as the commencement date for the Act generally. It applies to every tax year beginning on or after that date; tax years beginning earlier remain governed by the Income-tax Act, 1961, under the savings clause in section 536(2).
See also: Corporate Tax, Income Tax Return, and Withholding Tax.
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